The Consumer Financial Protection Bureau’s push for open banking could close doors to economic opportunity for many Americans, financial analyst Karen Petrou wrote in a recent blog post on her firm’s website.
The CFPB recently released its final rule implementing Section 1033 of the Dodd-Frank Act, which requires financial institutions to make a consumer’s financial information available to them or a third party at the consumer’s direction. The move is meant to encourage open banking, but when asked by CNBC about the potential for fraud in such a system, CFPB Director Rohit Chopra said fraud “will happen in any circumstance in a digital economy.” Instead, he added, “we should be embracing competition.”
“In short, it is right to expose me to greater risk of identity theft or authorized fraud because account portability might earn me an extra quarter-point of interest on the deposit account thieves are about to pillage,” Petrou wrote in response to Chopra’s remarks. “Given that the majority of American household economies are poised on the head of a pin, this trade-off exacerbates economic inequality and even hardship.”
Petrou agrees with Chopra on one aspect of the 1033 rule: Her data are her personal property, so she should have the right to demand access to it and have it protected without charge. “But demanding that the financial institutions to which I entrust my data also transmit it to third parties without charge despite all the authorization cost and liability risk this entails for the financial institution is like asking that a pet sitter take care of my dog for free because I own it,” she added.
“Regulators never seem to learn that actions have unintended consequences because private companies do not roll over to serve the presumptive public good no matter the cost,” Petrou wrote. “We have seen this in capital rules that make banks safer but also lead to relentless regulatory arbitrage and new, often-lethal risks to financial stability. We will also see it in open banking because companies such as banks that hold our data will do with it as they are told for now, but do something different thereafter to reduce the huge cost and unmitigated risk forced on them by the final CFPB standard.”
